What's Up with the Euro?

Weekly—it is in an uptrend but closed this past Friday with a lower low than the prior week. One could make the argument for an evening star. This is a three candle pattern. Did you know both Venus and Mercury are called evening (and morning) stars? It’s because they can’t be opposite the sun which means they can’t, for example, rise at sunset. Venus, which is brighter than Mercury, appears in the sky just before it gets dark. Obviously it’s bearish. The criteria are that the first candle is a longish white candle, the second should be a star, and the third candle needs to close well into the first candle’s body. In Steve Nison’s book, Japanese Candlestick Charting techniques, he writes that a star is a small body candle that gaps away from the candle preceding it. Within the Forex markets you don’t usually see gaps and when I went to his course a couple of years ago, he said it wasn’t necessary in this market. Any star pattern is more significant if it’s at support or resistance. The high of this star was 1.4846 which has been the high since the summer of ’08. I’d say this was resistance. From the weekly chart I lean bearish but have to keep in mind the overall uptrend.

Daily—it has been in an uptrend until the last nine days when it’s been in a range between 1.4467 and 1.4846. It’s either gathering energy for another push higher or getting ready to turn down. Or it may continue to range a bit. Now those are the kind of definitive statements that make you want to pull your hair out, don’t they? Should I buy or sell is what most people want to know. But we don’t know the future and can only build a case based on clues. There was a double top. It broke the neckline and is back at that neckline now. There’s divergence with RSI (price has been headed up and RSI is flat or headed downward). This is bearish. What troubles me is that RSI hasn’t fallen below 46 since April. This is bullish. Finally, notice on the daily below, what Charles Bulkowski in his Encyclopedia of Chart Patterns (John Wiley & Sons, 2005), calls an ascending broadening wedge. Both lines are headed upward. Neither line is horizontal. The top line is steeper. There should be at least three distinct touches on each side. We have two on the top and three on the bottom. Neither of the double tops quite made a touch. Bulkowski also says a close below the lower trend line is usually a genuine breakout. It has so closed. Of course no pattern is fool-proof and there are many Euro bulls out there. So, on the daily we have conflicting signals.

3-hour and 1-hour—it’s in a downtrend lately. The last few candles have been indecisive ones. It’s at the top of a downward channel. This channel could also be a flag which would be bullish. So there are some mixed signals here as well.

I did go short this morning as you can see on the daily chart below but with a tight stop. We’ll just have to see.

None of the above are trade recommendations. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.